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Has Uber Finally Met Its Match?

Uber has been on a tear. The ride-sharing behemoth is valued at more than $50 billion, making it the most valuable private tech company in the world. The Silicon Valley darling operates in 380 cities globally. It’s hired a bevy of lobbyists to help it overcome regulatory woes, and it’s expanding into new categories, like food delivery. Uber even has its own self-driving-car research facility in Pittsburgh. But there’s one place the company is still struggling to dominate: China.

The problem for Uber is not regulatory hurdles, as it faces in Europe. In fact, business is booming in China, despite the country’s slowing economy. Uber's three most popular cities—Guangzhou, Hangzhou, and Chengdu—are all in China. And Uber’s services are taking off faster in China than they did in the U.S. The company touts the fact that it only took nine months of operation in Chengdu for the company to accumulate 479 times the number of trips it had done in New York City in the same length of time.

Instead, Uber’s biggest challenge in the People’s Republic is a mounting arms race with a company called Didi Kuaidi, a combined entity of two Chinese ride-hailing services, Didi Dache and Kuaidi Dache. Didi Kuaidi is said to be raising a new billion-dollar round of funding that would value the company at a hefty $20 billion, Bloomberg reports. Last year, Didi Kuaidi announced a strategic partnership with American Uber rival Lyft, and the companies are working to grow a global anti-Uber alliance by linking up with other ride-hailing upstarts GrabTaxi (based in Southeast Asia) and India’s Ola.

Both Uber and Didi are raising piles of money to take over China. But both companies are also burning through their cash reserves to do so. A leaked pitch deck and financial statements said Didi Kuaidi’s individual entities, Didi Dache and Kuaidi Dache, recorded operating losses of $305 million and $266 million, respectively, in the first five months of 2015. Meanwhile, Uber is said to be losing more than $1 billion annually in China. In a recent interview, Uber C.E.O. and co-founder Travis Kalanick addressed the arms race, telling Canadian news site Betakit, “We have a fierce competitor that’s unprofitable in every city they exist in, but they’re buying up market share. I wish the world wasn’t that way.” (Didi Kuaidi denies Kalanick’s claims about its widespread unprofitability).

It remains to be seen which company flinches first as the two race to the bottom, offering ever cheaper rides in their bids to control what ultimately could be a winner-take-all market. China has proposed new ride-sharing regulations, which could potentially handicap Didi Kuaidi and Uber similarly, despite Didi’s home-team advantage. But in the end, the battle may not be worth it for Didi Kuaidi. Didi Kuaidi exists primarily as a taxi service, but Kalanick has a bigger plan for Uber. Already, Uber is beginning to show signs of transforming into a logistics company, launching its first-ever standalone app, called UberEats, for food delivery, in Toronto (the app is expected to launch in the U.S. in March). The company has also implemented UberRush, a courier service, and UberCargo, a logistics-and-delivery service, in Hong Kong. Self-driving cars are also on the way. Kalanick’s grand vision of Uber as an autonomous, end-all, be-all transportation-and-logistics service could still be the company’s saving grace in China—and around the world.